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Growth and welfare effects of monetary policy with endogenous fertility

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  • Chang, Wen-ya
  • Chen, Ying-an
  • Chang, Juin-jen

Abstract

This paper investigates the economic growth and social welfare implications of monetary policy in an endogenous growth model with endogenous fertility. We show that, in the money-in-the-utility-function framework, endogenous fertility governs the validity of money superneutrality, the transitional dynamics of an anticipated monetary policy, and the optimal monetary policy. Along a balanced growth path, monetary growth increases fertility and reduces the economic growth rate if consumption and real balances are complements or are independent. However, monetary expansion may decrease fertility and increase economic growth if consumption and real balances are substitutes. Generally speaking, the superneutrality of money does not hold in the presence of endogenous fertility. More importantly, with endogenous fertility, the Friedman (1969) rule is no longer a welfare-maximizing monetary policy. We also show that an anticipated inflation induces the transitional dynamics of fertility and the economic growth rate even though the intertemporal elasticity of substitution equals unity. This differs from the conventional notion in the existing literature.

Suggested Citation

  • Chang, Wen-ya & Chen, Ying-an & Chang, Juin-jen, 2013. "Growth and welfare effects of monetary policy with endogenous fertility," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 117-130.
  • Handle: RePEc:eee:jmacro:v:35:y:2013:i:c:p:117-130
    DOI: 10.1016/j.jmacro.2012.10.004
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    Cited by:

    1. Masaya Yasuoka, 2018. "Money and Pay-As-You-Go Pension," Economies, MDPI, Open Access Journal, vol. 6(2), pages 1-15, March.

    More about this item

    Keywords

    Endogenous fertility; Endogenous growth; Monetary policy;

    JEL classification:

    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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